In the report,
we noted that the two issuing processors Mercator had interviewed were entirely
unclear regarding MasterCard and Visa’s intent, despite the fact the networks
created profit centers for tokenization and brought all aspects of token
operations into their network for enabling Apple Pay. The report also points
out that tokenization represents an opportunity to disadvantage competitors:

“It should be recognized that
MasterCard and Visa appear to be using tokens not only as a mechanism for a new
revenue stream but also to gain network traffic from competitive debit
networks. On July 24, the Secure Remote Payment Council (SRPc) issued a
Tokenization Position Statement that indicates the EFT networks have been
excluded from the tokenization standards process, as they were from the
original EMV standards process, and that the token infrastructure currently
being defined and announced by the major networks will likely not be compatible
with EFT network operators, including the ATMs they drive. Note that several of
the ATM networks are also owned by the issuing processors. This incompatibility
has less to do with technical complexity than with a lack of planning during
the standardization process. While, as described in the history of
tokenization, the networks were under high competitive pressure, this is the
exact same kind of lack of planning that caused a ruckus during the EMV
roll-out, so it is hard to imagine this was just an oversight during the
tokenization standard development.”

Now Visa has
clearly stated its intent. Charles Scharf, Visa’s CEO, made the following statement at the Bank of America Merrill Lynch
2014 Banking & Financial Services Conference November 12:

“Those of us that participate in the
token infrastructure can make decisions on who you want to give access to,
whether you want to charge for it and things like that. So it’s hugely
meaningful to our ability to open up new channels and to make sure there’s
clarity in terms of who controls the payment information. We put a rate
schedule out there for tokenization. We said we’re waving everything through
the end of 2015. We want people to adopt tokenization. We think it thus creates
a meaningful set of opportunities that would be difficult for us to participate
without something like tokenization.”

This
statement appears to fly in the face of reports that indicate issuing banks pay
a $0.50 fee for each Apple Pay phone that is enabled and that maintenance fees
are also charged monthly. But even if Scharf is correct, what are the odds that
Visa, or MasterCard, would take on the cost of token implementation without a
profit? And with regard to his statement (quoted above) “So it’s hugely meaningful to our ability to open up new channels and to
make sure there’s clarity in terms of who controls the payment information,” clearlythe EFT networks recognize they have
lost control.

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